Energy plan keeps the coal fires burning as long as possible
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Energy plan keeps the coal fires burning as long as possible

Australian households must prepare for a mammoth overhaul of the nation’s electricity grid as investment surges into renewable energy, sparking a new call to keep coal-fired power stations running for decades to help with the transition.

The nation’s energy market operator has warned that Australians are exposed “more than ever” to the risks and costs of the disruption as it sets out a series of major projects needed to improve the capacity and reliability of the electricity grid.

With almost 80 per cent of new energy projects using wind and solar generation, the peak regulator has outlined a sweeping investment plan including new transmission lines, battery storage and expanded hydro-electric projects to cope with the change.

The Australian Energy Market Operator forecasts the closure of coal power stations that currently serve about one third of total electricity consumption across the national electricity market, or NEM, while warning of the risk of “catastrophic” failure of some generators ahead of schedule.

“Over the next 20 years, approximately 30 per cent of the NEM’s existing coal resources will be approaching the end of their technical lives, and will likely be retired,” the regulator says.

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The report released by Australian Energy Market Operator chief executive Audrey Zibelman also highlights the importance of “mitigating premature retirements” because the coal power stations provide “essential low-cost energy” for the grid.

“In the period from 2030 to 2040, a significant amount of the NEM’s coal-fired generation is expected to reach end of technical life and retire,” the report says.

“As noted, given the scale of the investment and building time required, it will be important to retain existing coal-fired generators until the end of their technical life to maintain reliability.”

Energy reliability will require that the life of coal-fired power stations be extended, according to the report.

Energy reliability will require that the life of coal-fired power stations be extended, according to the report.Credit:Michele Mossop

The findings come as Energy Minister Josh Frydenberg seeks a deal with the states and territories on a new policy, the National Energy Guarantee, which imposes reliability standards on electricity retailers in ways that could make coal more competitive.

The report assumes the National Energy Guarantee removes the risk premium on new investments by ending some of the uncertainty over regulation, while also assuming a 28 per cent cut in carbon emissions by 2030 – the target announced by Tony Abbott as prime minister three years ago.

Mr Abbott is now calling for a retreat on the emissions target and the construction of new coal power stations, while some Nationals MPs welcomed a suggestion from the Australian Competition and Consumer Commission last week that raised the idea of “energy offtake agreements” to encourage investments in new power generation, possibly coal or gas as well as renewables.

But the market operator's report does not call for an expansion of the coal sector and argues instead to make the most of the existing generators.

Noting the cost advantages of solar and wind projects over the years to come, it recommends investments in the transmission grid and interconnectors between South Australia and Victoria and between Tasmania and the mainland.

The regulator finds that rooftop solar will be a major source of new energy, backs the government’s flagship Snowy 2.0 hydro-electric scheme and supports the growing use of Tasmanian hydro power as a “battery” to store electricity from renewables.

“The investment costs associated with replacing old and retiring infrastructure with new plants, in one of the most capital-intensive industries, are significant and unavoidable,” it concludes.

“AEMO’s modelling shows that the total investment required to replace the retiring generation capacity and meet consumer demand has a net present value cost of between $8 billion and $27 billion.”

The wide range in the cost estimate depends on the assumptions made around economic growth and rate of industry transformation.

“This level of capital investment is going to be needed, irrespective of this plan,” it concludes.

The next steps in the process are for the regulator to meet energy companies to discuss the priority investments, with modelling showing that spending 8 to 15 per cent of the capital budget on transmission will produce the best results by making the grid more efficient.

Much of the report outlines the change to “distributed energy resources” such as rooftop solar, which is close to the point of energy consumption and requires a shift in design for the transmission grid.

The plan projects total system cost savings ranging between $1.2 billion and $2.0 billion with an integrated approach and the new transmission investment.

It also notes that the transmission investment it recommends for immediate action, costing $450 million to $650 million, is equivalent to “less than 1 per cent” of the annual budget for transmission and distribution investment, estimated to cost about $6.2 billion per year.

David Crowe is Chief Political Correspondent of the Sydney Morning Herald and The Age.

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